The Securities and Futures Commission (SFC) has issued a reprimand to Sun Hung Kai Investment Services (Sun Hung Kai) in respect of internal systems and controls relating to the sale of Lehman Brothers Minibonds to its clients since 2002.

The non-bank financial institution has agreed with the SFC to make a voluntary offer to purchase all outstanding Lehman Brothers Minibonds bought by eligible Sun Hung Kai clients at a price equal to the principal amount invested by them.

The offer will affect 310 primary market customers, and Sun Hung Kai estimates the total repurchase amount will be up to $85m and be concluded by 27 March 2009.

Martin Wheatley, chief executive f the SFC, said: "We are very pleased with the outcome that has been achieved and we believe the approach adopted has produced a result which is in the best interests of the investors.

"I would like to commend the management of Sun Hung Kai for the responsible and timely approach they adopted in reaching this agreement, which recognises the best interests of their customers.

The decision follows an investigation by the SFC which raised a number of concerns with Sun Hung Kai. These concerns surrounded the adequacy of product due diligence on Lehman Brothers Minibonds before they were distributed to eligible clients; the adequacy of training given to Sun Hung Kai retail sales staff on Lehman Brothers Minibonds to enable them to understand the product and all its material risks; the assessment of the level of risk for each particular series of Minibonds, the communication of those risk ratings to its retail sales staff and the measures that ought to have been taken to ensure that its sales staff gave reasonably suitable advice by matching the risk-return profile of each series of Lehman Brothers Minibonds with the personal circumstances of each eligible client; and the record-keeping of investment advice given to eligible clients and any queries raised by them.

While Sun Hung Kai has not admitted any liability or wrongdoing arising from these matters, it has acknowledged the seriousness of these concerns and has agreed with the SFC to offer: its eligible clients the opportunity to purchase all outstanding Lehman Brothers Minibonds bought through Sun Hung Kai at a price equal to the principal amount invested by those clients (the eligible clients will retain all coupon payments received to date) with payments to be made within 30 days of the date of acceptance; to engage an independent audit firm to conduct a review of Sun Hung Kai's internal control and compliance systems; and if, within 18 months from the completion of Sun Hung Kai's current enhancement exercise (which shall be completed within six months from the date of this agreement), the SFC finds the same concerns of a materially serious nature as those identified by it in this investigation, Sun Hung Kai's licence will be partially suspended for a period of three years to the extent that Sun Hung Kai will not be allowed to sell or distribute unlisted or structured products to clients and provide advice to clients in relation to these products; and to continue to support and cooperate fully with the SFC.

Joseph Tong, executive director and chief executive, wealth management, brokerage & capital markets, at Sun Hung Kai Financial, said: "Given the state of the markets globally and the relatively small sum involved, we would prefer to focus our energies on our strategic business development plans, rather than become embroiled in a protracted legal dispute which would benefit neither our customers nor our company.

"Our key priority since day one of this Lehman Brothers issue has been to ensure that our customers are looked after, and we strongly believe that this repurchase initiative is testament to our commitment to our customers and the broader Hong Kong community. In fact, in light of the overwhelmingly positive response we have received not just from our customers, but also members of the general community, we are satisfied that we have made the right decision."